Composition Scheme Under GST: Objectives, Eligibility & Application Process

Small and medium businesses are the backbone of the Indian demand and supply market. To ensure these businesses flourish even more without facing any challenges, the Government of India introduced a composition scheme under GST. This composition scheme has almost similar characteristics to that of the composition scheme functional in earlier VAT regimes.

Want to know more about this composition scheme under GST? Stay tuned!

What Is this Composition Scheme Under GST?

The Composition Scheme under GST allows tax payment at a concessional rate based on turnover. This scheme enables small businesses to avoid rigorous GST formalities and pay tax at a fixed rate of turnover. Remember, this composite scheme of GST is not a compulsory scheme.

This scheme focuses on small businesses, i.e. taxpayers who can pay tax at concessional rates.

Note that there are certain GST composition scheme rules which small businesses have to obey in order to get the benefits offered under this scheme.

What Are the Eligibility Criteria for this Composition Scheme Under GST?

GST Composition Scheme is available to those small taxpayers whose turnover is below ₹ 1.5 crores.

The Composition Scheme under GST limit is set at ₹75 lakh for Eastern State and Himachal Pradesh.

According to the CGST (Amendment Act) 2018, a composition dealer can continue to supply services for up to 10% of turnover or ₹ 5 lakh, whichever is higher; this amendment came into effect from 1st Feb 2019. In the 32nd meeting of the GST Council, the committee proposed to increase the limit, especially for service providers, on 10th Jan 2019. Here, the calculation of turnover will depend on all businesses having registration with the same PAN.

Note: The CBIC has urged to increase the limit under GST composition scheme from ₹ 1 crore to ₹ 1.5 crores.

Besides, individuals who cannot avail Composition scheme under GST are as follows:

Individuals involved in inter-state supplies
Manufacturer of tobacco, ice cream and pan masala
Non-resident taxable individual or ordinary taxable citizen
Businesses supplying commodities through an e-commerce platform

What Are the Conditions to Opt for Composition Scheme under GST?

Individuals need to fulfil the following conditions to avail Composition scheme under GST:

A dealer availing this composition scheme cannot claim input credit tax.
Dealers supplying goods that are non-taxable under GST, such as alcohol, cannot opt for this scheme.
Taxpayers need to pay tax at normal tax rates for payments done under Reverse Charge Mechanism.
Taxpayers need to specify ‘composition taxable person’ on a signboard displayed at their business place.
If taxpayers operate businesses under different segments such as electronics, textiles etc., under the same PAN, they should register all these businesses collectively or withdraw from this scheme.
Taxable individuals need to specify ‘composition taxable person’ on their issued bill of supply.

After knowing all these criteria, individuals can now apply for this scheme without any hassle.

How to Apply for the Composition Scheme under GST?

Here is a step-by-step guide to applying for this Composition Scheme under GST.

1. For Individuals Who Are Already Registered as a Regular Taxpayer

Step 1- Visit the GST portal and login to the Taxpayers’ interface.
Step 2- Navigate to the Services section. Then move to registration.
Step 3- Click on Application to Opt for Composition Levy.
Step 4- Fill up the form with essential information and submit it.

2. For Individuals Who Are Applying for Fresh Registration

Individuals must file an intimation via Form GST REG-01.

3. For Individuals Who Are Registered as Regular Dealers Under GST but Are Now Willing to Shift

Individuals must furnish an intimation in Form GST CMP – 02 and state their wish to utilise this option. Here, they need to provide a statement via Form GST ITC-3 with details of ITC regarding stock, semi-finished or finished goods - within 90 days (as per the new rule) of the beginning of the particular financial year.

Note: Individuals must file a GST TRAN-1 before submitting Form GST ITC-03

What Are the Documents Required for Composition Scheme under GST?

To opt for this GST Composition Scheme, bill of supply is mandatory. Since composition vendors are not authorised to collect tax, they cannot file for ITC on the supplied products on their end. Hence, they need to have a bill of supply instead of a tax invoice.

What Are the Benefits of the Composition Scheme under GST?

Following is a list of benefits available under the Composition Scheme GST.

1. Decreased Tax Payment

The new tax structure lowers the liability of taxpayers.

2. Higher Liquidity

Lower tax liability at fixed GST Composition rate brings more liquidity to a small business. If businesses have more liquidity, they can maintain cash flow efficiently and ensure smooth business operation.

3. Reduced Compliance Requirement

One of the prime benefits of the Composition Scheme under GST is the reduced compliance requirement. Here, individuals need not maintain record books, can file lesser returns and avoid furnishing tax invoices.

The above-mentioned piece talks about Composition Scheme under GST. Read these details carefully, especially the sections of eligibility and the application process and do the same without any hassle.

Frequently Asked Questions

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What forms do individuals have to submit if they want to move from composition to regular dealer?

If individuals want to switch from composition to regular dealer, they have to submit a stock statement in Form GST ITC-01 and file an intimation in Form GST CMP-04.

What is the rule for filing tax returns in the Composition scheme under GST?

A composition dealer needs to furnish only 1 return (GSTR 4) annually by 30th Apr, following a financial year that came into effect from FY 2019-20.